How much more revenue can the internet access business generate, in markets that are near saturation (almost everybody who wants it already buys)? To be sure, internet service providers will keep boosting speeds and seek to add value to their service features.
Home broadband has become an “essential” utility in many markets, so demand remains consistent. On the other hand, competition is growing, so retail prices can face pressure. And market share matters in near-saturated markets.
Weigh everything and one might conclude that revenue growth is going to be difficult, even as customers are shifted to higher-cost plans, where possible.
The fundamental limit is that households will only spend so much on internet access. Basically, households tend to spend between 1.5 percent to 2.25 percent of gross domestic product on communications services.
Over time, household spending on connectivity services has fallen. Nor has business spending moved much, either.
Think of any business. How much will they spend on marketing, sales, labor? The percentages might change a bit, over time. But those percentages are relatively fixed. Consumer spending does not change too much from year to year.
Nor does the percentage of income spent on various categories change too much.
In Myanmar, a new mobile market, spending per household might be as high as eight percent of total spending. In Australia, communications spending (devices and services) might be just 1.5 percent of household spending.
In South Africa, households spend 3.4 percent of income is spent on communications (devices, software and connectivity). In Vietnam, communications spending is about 1.5 percent of total consumer spending.
In the United States, all communications spending (fixed and mobile, devices, software and connectivity, for all household residents) is perhaps 2.7 percent of total household spending. U.S. household spending on communications might be as low as one percent of household spending, for example.
That means spending on communications services will tend to vary by revenue growth and the health of the economy. Some consumer demand also is shaped by new housing construction, as well. More homes mean more connections.
The implication is that total market growth always is constrained on the demand side. That is not to say that demand growth is impossible: value can change over time. But value does not always correlate in a linear way with willingness to pay.
The extreme examples are luxury goods, where higher prices might actually increase demand (think yachts, jewelry, artwork).
For most products, higher value leads to higher price. But computing appliances and data services have been outliers. Products improve so rapidly (twice as capable every 18 months) that product obsolescence is built in.
To the extent that internet access increases at Edholm’s Law or Nielsen's Law rates, home broadband services at any speed are continually devalued.
Edholm's Law suggests that bandwidth will increase at the same rate as Moore’s Law suggests transistor density will grow. Nielsen’s Law of Internet Bandwidth states that a high-end user’s connection speed grows by 50 percent each year, doubling roughly every 21 months.
Cloonan's Curve predicts how much bandwidth a typical customer of home broadband services might actually buy. Cloonan’s Curve essentially describes home broadband consumer behavior.
Most customers do not typically buy the fastest-available service, as that also is typically the most-expensive tier of service. Instead, they tend to buy the mid-level service.
The caveat is that Cloonan’s Curve obviously does not apply to service providers that sell only a single tier of service, at the advertised headline rate (“gigabit only,” for example).
This illustration of downstream bandwidth plans actually purchased by customers suggests that although both Nielsen and Cloonan rates increase at about 50 percent per year, most customers buy services that offer six times to 20 times less speed than the fastest-available service tier.
But usage and price are not connected in linear fashion. Over time, cost per bit tends to decline with volume supplied. And, no matter what the volume supplied, retail prices only grow incrementally, at rates roughly in line with inflation, or below.
In fact, there is evidence that internet access prices have dropped over the past two decades, in the U.S. market, for example. That is especially true when evaluating plans people actually buy, rather than retail tariffs. Looking only at posted retail prices, and not at actual behavior, can lead to significant distortions.
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